SINDH ENGINEERING (PVT.) LTD., KARACHI VS CUSTOMS, EXCISE AND SALES TAX, APPELLATE TRIBUNAL, KARACHI BENCH, KARACHI, 2002 PTD-KARACHI-HIGH-COURT-SINDH 2556 (2002)

Customs Act (IV of 1969)‑‑‑

‑‑‑‑Ss.13, 19, 62, 86, 97, 104, 156(1) & 196‑‑‑Notification S.R.O. No.502(I)/94, dated 9‑6‑1994‑‑‑Sales 'fax Act (VII of 1990), S.34‑‑ Income Tax Ordinance (X‑XXI of 1979), S.86‑‑‑Removal of goods from bonded warehouse without payment of customs duty and taxes‑‑ Goods imported by appellant (a State owned enterprise) were chargeable to customs duty and other taxes at concessionary rate under S.R.O. No.502(I)/94, dated 9‑6‑1994‑‑‑Appellant was issued show‑cause notice for having removed goods from bonded warehouse without payment of customs duty and taxes and without filing of bill of entry‑‑‑Appellant paid evaded customs duty and taxes at concessionary rate‑‑‑Authority did not accept appellant's plea of having violated the law on account of financial constraint‑‑‑Tribunal dismissed appellant's appeal filed against levy of duty and penalty‑‑ Appellant's contention was that show‑cause notice whereby proceedings had been initiated was based on the report of Apprising Intelligence Branch, whereas benefit of S.R.O. 502(I)/94, dated 9‑6‑1994 could be denied on the report of Assistant Collector, Central Excise and Customs only as provided in Condition No.IX of said S. R. O.‑‑‑Validity‑‑‑Condition No. IX of S.R.O. 502(I)/94, dated 9‑6‑1994 would come into play, when goods had been cleared after filing of bill of entry and payment of duties and taxes as required under law and subsequently there was any information to the effect that imported components had not been consumed to sustain the benefit of concession allowed‑‑‑Provisions contained in Condition No.IX of said S.R.O. would not be attracted, where goods were removed illegally without filing bill of entry for home consumption and without payment of duties and taxes, rather same would attract the provisions of Ss. 86, 97 & 107 of Customs Act, 1969 and would further result in forfeiture of concession granted under S.19 of Customs Act, 1969‑‑‑Appellant had removed goods without filing bill of entry for home consumption and without paying duties/taxes, which fully established violation of law‑‑‑Financial crunch could not provide justification for violation of law‑‑‑Appellant's plea for condonation of violation of law had rightly been rejected by Authorities to which no exception could be taken‑‑‑High Court upheld impugned orders and dismissed the appeal in circumstances.

Aziz A. Shaikh for Appellant.

Raja Muhammad Iqbal for Respondent.

Date of hearing: 1st November, 2001.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.‑‑‑This appeal under section 196 of the Customs Act, 1969 is directed against the order, dated 4‑11‑1999, by the Customs, Excise and Sales Tax Appellate Tribunal, Karachi (hereinafter referred to as the Tribunal) in Appeal No. 912 of 1998.

2. The relevant facts are that the appellant is a State‑owned enterprise, engaged in assembly and manufacture of motor vehicles imported in CKD condition and maintains its own bounded warehouse within the factory premises. The goods imported by the appellant were chargeable to customs duty, sales tax and income‑tax at concessionary rate in terms of Notification S.R.O. No.502(I)/94, dated 9‑6‑1994.

3. The normal rates of tax were as follows:

Customs dutySales tax Income‑tax

60%15% 5%

The concessionary rates in terms of S.R.O. 502(I)/94, were as follows:

Customs dutySales tax Income‑tax

30%12.5% 2.5%

4. The appellant imported two consignments of Mazda 3500 vehicles in CKD condition bearing Model No. WT‑81 and Model WT‑82 consisting of 100 units and 140 units. The imported goods were placed in the bonded warehouse of the appellant.

5. The Appraisement Collectorate Customs House, Karachi, received information that the Mazda vehicles imported in CKD condition by the appellant were illegally removed without payment of custom duties/taxes from the bonded warehouse. An inquiry was therefore, carried out and it has found that out of 240 units, 61 units only were lying in the bonded warehouse either in CBU/CKD condition or at different stages of assembly line, 1979 units were found illegally removed without payment of customs duties and other taxes which amounted to the violation of provisions contained in sections 86, 97 and 104 of the Customs Act, 1969, punishable under .clauses (54), (58), (59) and (62) of section 156(1) of the Customs Act, 1969. The act was violative of the provisions of section 13 of the Customs Act, 1969 as well. After the illegal removal of goods was deducted and inquiry was initiated, the appellant deposited an amount of Rs.2,46,22,901 on account of evaded customs duty and taxes as per concessionary rate of duty/taxes, without filing ex‑bond bills of entry, which they were required to pay at the time of ex‑bonding.

6. A show‑cause notice was therefore, issued to the appellant stating therein that they have misused the facility provided under the concessionary notification and therefore, they were not entitled to the concession available under the notification issued under section 19 of the Customs Act, 1969. They were called upon to explain as to why they should not be held liable to pay the customs duty and taxes at normal rate and further to pay additional taxes which shall be calculated at the time of payment of actual short‑levy, as per provisions of section 34 of the Sales Tax Act, 1990 and section 86 of the Income Tax Ordinance, 1979. They were further called upon to show as to why, they should not be made to pay the penalty being twice the amount of duty assessed as provided under section 86 of the Customs Act.

7. In reply to the show‑cause notice, the appellant submitted that normally they paid duty and taxes after the finished vehicles roll out of the factory. They are State Enterprise and were placed in great financial constraint because of blocking of the huge amounts due from the Income‑tax and Customs Department. Because of this blocking of their amounts it became difficult for them to carry on their business. Due to financial crunch, they were forced to remove 179 vehicles from bonded premises without payment of duty and taxes thereon. Some of these vehicles were sold on credit, due to great slump in the market. They contended that they have paid full duty and taxes on 179 vehicles, after realization of the sale proceeds. It was contended that they have been complying with the customs regulations in the past but, because of unusual financial crunch, they were forced by the circumstances to resort to clearance of the assembled vehicles contrary to the regulations to save their organization. They contended that, it was not a case of evasion of duty but, was merely delayed payment of Government dues. They pleaded for sympathetic view praying that demand of double duty at statutory rate should not be insisted upon. They conceded that CKD vehicles were assembled and thereafter cleared and were not cleared in CKD state. They further pleaded that, they were‑ State enterprise and there was no beneficiary to benefit by the alleged irregularity. The Collector Appraisement, did not accept the plea that the law was violated because of financial constraint, therefore, the duties and taxes may be realized at concessionary rate under S.R.O. 502(I)/94. The Collector of Customs (Appraisement) further observed that the concessions of duties/taxes are invariably extended to those importers who fulfil all the prescribed rules and regulations while the appellants have committed serious offence of illegal removal of imported goods as they have neither filed any bill of entry for clearance of the goods nor they have fulfilled the mandatory conditions of S.R.O. 502(I)/94. He further held that the appellants have violated the terms of bond executed by the appellant and therefore, the levy of duty and the penalty can be condoned by the Federal Government only.

8. The Collector of Customs further held that the Offices under sections 86, 97 and 104 of the Customs Act, 1969, stand established. They had deposited Rs.2,46,22,109 at the normal rate of duty and taxes, and were held liable to pay Rs.4,64,20,063 plus the additional taxes under section 34 of the Sales Tax Act, 1990 and section 86 of the Income Tax Ordinance, 1979 which shall be calculated at the time of final payment. The appellants were directed to make further payment of Rs.2,17,97,162 plus the additional taxes chargeable under section 34 of the Sales Tax Act, 1990 and section 86 of the Income Tax Ordinance, 1979. A personal penalty of Rs.1,00,000 was also imposed under the provisions of clauses (54), (58), (59) and 62 of section 156(1) of the Customs Act, 1969.

9. The appellant being dissatisfied, preferred appeal before the Tribunal, reiterating the same contentions as raised before Collector of Customs. Another plea was raised that Assistant Collector, Central Excise and Customs only had the jurisdiction to take cognizance of the alleged violation as per Condition No.IX of S.R.O. 502(I)/94 and the concession granted under the said S.R.O. could not be denied, unless the appellant failed to produce a consumption certificate.

10. The learned Tribunal observed that it was admitted position that 179 Mazda motor vehicles were removed from bonded premises without payment of duties/taxes. It was held that if the plea of financial crisis is accepted it will lead to chaos. According to the learned Tribunal the exemptions were to be enjoyed strictly and the beneficiary shall, get the benefit if its hands were clean. The order of the Collector was upheld and the appeal was dismissed for the reason that the violation of beneficial S.R.O. was admitted.

11. Being still dissatisfied, the appellants have preferred this second appeal before us.

12. The main contention of the appellants is that the show‑cause notice whereby the proceedings have been initiated is based on the report of Apprising Intelligence Branch, while the benefit of S.R.O 502(I)/94 could be denied on the report of Assistant Collector, Central Excise and Customs, only, as provided in Condition No.IX of the 'said order which reads as follows:

(ix) In case Assistant Collector, Central Excise and Customs, is not satisfied regarding the consumption of imported components or use of locally produced deleted components, he shall report his findings to the Collector of Customs concerned who shall initiate proceedings for encashment of post dated cheque and penal action for giving false declaration.

13. Mr. Aziz A. Shaikh, learned counsel for the appellant has admitted that the goods were removed without permission. but has contended that no loss has been caused to the Revenue because the entire duty and taxes have been paid at the rates specified in S.R.O. 502/(I)/94.

14. On the other hand Mr. Raja Muhammad Iqbal, learned counsel for the respondents has submitted that the violation of the mandatory requirement, on the part of appellants is admitted and the duty/taxes have been paid after the initiation of inquiry, on receiving of information of the violation on the part of appellants, therefore, the appellants are not entitled for the beneficial treatment. He has pointed out that according to Condition No.VI in S.R.O. 502(I)/94, the importer was required to furnish to the Collector of Customs an indemnity bond and post dated cheque of the amount equivalent to the customs duties exempted to abide by the conditions laid down in the notification failing which he would pay the customs duties leviable on each consignment in excess of any other penalties that may be imposed by the Collector of Customs in this behalf. He has pointed out that the respondent No.2. in his order in original has specifically dealt with this issue as well the bond executed by appellant in terms of section 86 of the Customs Act, and has shown that the appellant has violated the terms and conditions of the S.R.O. 502(I)/94 as well as the bonds. Mr. Raja Muhammad Iqbal has further submitted that, so far Condition No.IX under which the appellant has tried to take the refuge, is concerned, it is not applicable to the facts and circumstances of the present case. His contention is that the Condition No.IX becomes operative, in case the Assistant Collector, Central Excise and Customs is not satisfied regarding the consumption of imported components or use locally produced deleted components. It has no concern with the violation committed by the appellant in this case, whereby they have removed the goods from the bonded warehouse without filing the bill of entry for home consumption and without payment of duties/taxes. He has contended that the appellants have admittedly committed violation of the law and the only plea raised by them before the Collector of Customs, the respondent No.2, was that they committed the contravention of law because of the financial crunch. Mr. Raja Muhammad Iqbal, has fully supported the impugned orders of the respondents Nos. 1 and 2.

15. We have carefully considered the contentions raised by the learned advocates for the parties before us and the entire material available on record. The violation of law on the part of appellant is admitted and therefore no finding is required on this point. The sole plea taken before the Collector of Customs on behalf of appellant was that the contravention of law was resorted to because of the financial crunch and in order to save the State‑owned Organisation from total collapse. However, the learned counsel for the appellant appears to have realized that the financial crunch cannot provide justification for contravention of law and therefore, the plea has been given up. The sole contention before us is that the respondent No.2, could not initiate the proceedings on the report of Appraising Intelligence Branch of Appraisement Collectorate to the effect that the appellant has illegally removed the goods without payment of customs duties/taxes from the bonded warehouse of the appellant and that the respondent No.2 could exercise jurisdiction on the resort of Assistant Collector, Central Excise and Customs only to the effect that he was not satisfied regarding the consumption of the imported components.

16. We are not persuaded to accept this contention. We find force in the submission of Mr. Raja Muhammad Iqbal that Condition No.IX of S.R.O. 502(I)/94, which has been reproduced in the earlier part of this judgment shall come into play, in case the goods have been cleared after filing bill of entry and payment of duties and taxes as required under the law and subsequently, there is any information to the effect that the imported components were not consumed, to sustain the benefit of concession allowed. However, if the goods are removed illegally, without filing the bill of entry for home consumption and without payment of duties and taxes it shall not attract the provisions contained in Condition No.IX of the S.R.O.502(I)/94 and it shall attract the provisions of sections 86, 97 and 104 of the Customs Act, 1969 and shall further result in the forfeiture of concession granted under section 19. We would like to refer to the provisions contained in section 86 of the Customs Act, which provides that the owner of the goods shall enter into a bond/undertaking to observe all the provisions of the Customs Act and the Rules in respect of the goods, and to the provisions contained in section 97, which provides that no warehouse goods shall be taken out of any warehouse, except on clearance for home consumption or export or for removal to another warehouse or as otherwise provided in the Customs Act. It is specifically provided in section 104 that any owner of warehouse goods may clear goods for home consumption by payment of the duty assessed on such goods under the provisions of the Customs Act. The admitted fact is that the appellants removed the goods without filing the bill of entry for home consumption and without paying the duties/taxes, which fully establish the contravention of law and consequently, it is held that the respondents Nos.2 and I have rightly rejected the plea of the appellant for condonation of the contravention of law to which no exception can be taken. The impugned orders of the respondents Nos.2 and I are therefore, upheld. The appeal stands dismissed accordingly.

C.M.A./M.A.K./S‑203/K

Appeal dismissed.